Read this blog to learn everything you need to know about Sec 8 companies, the advantages of forming such a company, its objectives, reliefs, and tax benefits.
In India, we have an Act that states that a Sec 8 can be set up as a Private Limited company, an LLP, or a Public Company. The basic objective of forming a Sec 8 is social welfare, with no intention of earning dividends or profits. A Sec 8 meaning is it is a non-profit organization and a non-government organization.
Features of a Sec 8
- No dividend: Members of the company are not eligible to receive any dividend
- Profits: All income and profits that accrue to the company have to be used for the non-profit work
- Special license: A special license is given by the Central Government to initiate the Sec 8, which is only issued when every specified requirement is fulfilled
- Status: A Sec 8 has to fulfill every obligation as done by a Limited company and also enjoy all its privileges
- Suffix in the name: A Sec 8 does not have the privilege of using ‘Ltd.’ or ‘Pvt. Ltd.’
- Power of registrar of companies (ROC): The application for creating the company has to be sent to the ROC that has jurisdiction in the area where the company’s registered office will be set up
- Conversion to a One Person Company: It is not possible to convert a Sec 8 into a One Person Company
- Sec 8(3) provides that such a company can make a partnership firm a member. Such membership will cease when the firm is dissolved, yet its partners can, in their individual capacities, remain, members of the Sec 8,
- Ownership transfer: Interests and shares of members of a Sec 8 are observed as movable property that is transferable based on the Articles that apply.
- Directors and shareholders:
- There should be at least two shareholders
- There should be at least two company Directors
- The same person can be both a shareholder and a director
- Share capital: No minimum share capital is required. Funding is done via donations and subscriptions made by the general public
- Limited liability: In Sec 8, the liability of the company members is limited to the unpaid shares that they hold
- Flexibility: There are fewer legal formalities to be fulfilled by a Sec 8 compared to any public company. Company law gives it special privileges and exemptions
- Shares Investment: Companies Rules (Incorporation), 2014, Rule 3(6) prohibits a person from investing in securities of a corporate body.
Objectives of Forming Sec 8
NPO has been established for the purpose of promoting various objectives, such as commerce, arts, performing charity, promoting education, environmental protection, promoting religion, and so forth. Any income or profit that accrues to the organization will be further used for promoting these activities and objectives.
Any income that the NPO makes cannot, by law, be utilized to pay dividends to members of the company. The income must be used to promote the specific charitable objectives of the company. NPOs are given a certificate of incorporation by the Central Government and the companies are bound to follow the rules that the Government has outlined.
The NPO rules specify that if an NPO fails to comply with the stated responsibilities as specified by the Central Government, the Government might order that the company be closed. Furthermore, there will be strict legal action taken against each and every member of the company if the objectives specified by the company turn out to be bogus.
Advantages of Registering as a Sec 8
There are several advantages of forming a Sec 8. Some of these are:
- Tax-exempt: There are various exemptions for Sec 8 as well as for those who donate to the company
- No requirement for minimum capital: The company does not need to have a minimum capital. It is possible to alter this capital structure at any stage as needed for the company’s growth
- Stamp duty not payable: A Sec 8 is exempt from stamp duty
- Separate legal entity: The Sec 8 is a legal identity with its own legal standing, which is separate from the members of the company, and it has perpetual existence
- No requirement of suffix: The company need not use a suffix after its name, such as ‘Ltd.’ Or ‘Pvt. Ltd.’
- Goodwill: A Sec 8 gets a certificate from the Central Government, which grants it respect and goodwill in the eyes of the public and other institutions. This brings in donations, grants, and other benefits
- Credibility: Due to the way they are formed, these companies have great credibility and are better able to execute projects in communities and reach out to groups. They can better bring people together in programs and even have international credibility.
Sec 8 in India can do a lot of good to society and the country’s well-being. This article gives you much-needed insight into the various aspects of a Sec 8 to get you started.
- Section 8 Company Registration Process
- How to Close a Section 8 Company?
- Documents Required for Section 8 Company Registration